The Ultimate Power of Being a Licensed Exchange

Why is it so important for your crypto exchange to have licenses? What does the word “regulated” even mean in this sense? It is a matter of security, transparency, trust, and predictability.

In this blog post, we will explain why licenses and regulations are a vital feature for a centralized crypto exchange, how you benefit and why we have chosen Estonia as our place of incorporation.

Kriptomat is governed by the laws of Estonia

Estonia has one of the most favourable and pro-crypto jurisdictions in the world. Their administrative procedures are fast, relatively inexpensive and most importantly — online.

The laws of Estonia are written in a way that a crypto exchange like Kriptomat can get a regulatory shelter. Why do we call it shelter? Every jurisdiction provides a certain level of safety – the less that a country is regulated, the more unsafe it is in the meaning of regulatory uncertainty.

In simple terms, there is a wider window left for the interpretations of laws. On the other hand, jurisdictions like Estonia provide a well defined, predictable and safe environment for a crypto exchange. How? By granting mandatory licenses for operations like Kriptomat. If you want to incorporate a crypto exchange in Estonia, you will inevitably have to obtain appropriate licenses.

Why Kriptomat picked Estonia

When choosing the right jurisdictions for Kriptomat, we were going for a strong, safe and regulated environment. But having a license is not something that has a self-purpose and nothing else has to be done.

By having the licenses, Kriptomat must follow additional law (besides European and Estonian regulation) and build compliant internal bylaws and procedures in order to be able to comply with the licenses. It has to have certain HR capabilities, follow predefined security standards, communicate with the authorities on a regular basis, implement strict anti-money laundering rules, and more.

Of course, this brings additional work, expenses, and challenges for the business. It is not something that a service like ours would willingly change, unless if the main goal and the highest value is the safety of their service and of its users, transparency and last but not least — accountability. Accountability for everything that might happen in this oh-so-virtual environment.

Licensed exchanges trade privacy for security, all for the benefit of the end user.

But, what if Kriptomat wouldn’t be incorporated in such a jurisdiction? You have many exchanges that are incorporated in a jurisdiction where there is very little or no regulatory environment for such a business. It is perfectly fine to have a crypto exchange there. Such a service will also have to follow certain international and national rules, but there are normally no laws that govern the specific (crypto) environment.

Benefits of licenses

I believe that having a license that governs our business is something that will pay off on the long run, regardless of the challenges that we have with implementing and following all the rules. This something in the benefit of our service and our users. How? Read further.

Licensed exchanges provide security and peace of mind

What peace of mind am I referring to? Well, when you are entering the world of cryptocurrencies and you wish to make your first purchase, you have to make a fiat deposit to an exchange.

When you do this, you have to be absolutely certain that you’re sending your money to a trusted service. This is why Kriptomat holds a license for providing services of exchanging a virtual currency against a fiat currency.

As a result, Kriptomat, in general, can process fiat (USD, EUR, etc.) to cryptocurrency transactions while decentralized exchanges, on the other hand, are only crypto to crypto due to KYC (Know Your Customer) and other regulatory restrictions.

We think that having the license provides our users with certainty, safety and predictability.

Licensed exchanges know their customers

Every user who registers at Kriptomat has to go through an identity verification process (KYC). It is a due diligence procedure where the user presents us with certain personal data in order to verify his or her identity. Kriptomat strives to make the procedure as simple and quick as possible.

This is how centralized exchanges eliminate fraud, forgery, black money, identity theft and other cases of financial crime. In other words, it is the only way to protect our service, our users, and fight against such threats. And we all want to feel safe, especially when our money is at stake, right?

There are many crypto-to-crypto exchanges that don’t offer buying and selling crypto with fiat money (EUR, USD, etc.). Such exchanges do not normally perform a KYC, but every user will somehow have to use fiat money to buy it, and this is where a proven and licensed exchange like Kriptomat comes in.

There are also fiat-to-crypto exchanges where users can buy crypto with fiat, without performing a KYC for certain amounts of money. Such exchanges will, in our opinion, soon have to implement it or will vanish.

Licensed exchanges trade privacy for security, all for the benefit of the end user. This will provide users and their funds with an additional level of safety.

Licensed exchanges provide business reliability

We believe that the world is built on relationships, especially in business. Kriptomat is doing everything to be in good relationships with the regulators, banks, insurances, community, and its competitors. In order to do that, it is vital to gain trust in our business. Trust is the ultimate thing that runs every good relationship. Don’t you agree?

Kriptomat builds trust on the foundation of regulatory compliance. Why? As we already mentioned, regulatory compliance gives you predictability and safety.

Our business partners feel the trust when they know (and have a solid proof of our licenses) that we do and will follow the rules or else we will be accountable for non-compliance towards our regulator and towards our users.

Good business relationships drive better results, more solid and strong foundation, better team spirit, wider net of good and trusted business partners, and much more. And this is something which has an effect on users and their trust in our business.

Conclusion

As you might have figured out by now, our top values are trust, transparency, and safety. In order to provide the best service, we have chosen the Estonian jurisdiction as we believe that it offers the best safety mechanisms for our users and for our service.